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The PwC Cost of Capital Report

March 2019 The PwC Cost of Capital Report We are pleased to present the re‑launched PwC Cost of Capital Report, covering 105 NZX‑listed companies. NZ listed equities have performed • Beta is calculated using a strongly in recent months, with the 5-year monthly approach, and headline NZX-50 index currently is measured at multiple points trading at an all-time high. Key recent through the month to reduce the market trends have included: potential for spurious variations. In Gareth Galloway • A continued downward trend in addition, we have applied a ‘floor’ Partner - Head of Corporate long-term government bond rates, asset beta of 0.4. We emphasise Finance with the 10-year government that the calculated betas reflect +64 21 983 519 bond yield at 1.8% as at 31 March a formulaic approach based [email protected] 2019, and on observed share prices, and the application of professional • An increase in observed market judgment may result in a different EBITDA multiples, currently at an estimate of beta. average of 12.9x (compared to 11.4x as at 31 March 2017). The Cost of Capital and Market Chris Hedley Multiples report is intended as an Executive Director Key assumptions underlying our overview of WACC and Market +64 21 479 860 analysis include the following: Multiples as at 31 March 2019. [email protected] • Based on government bond rate Advisors may form a different view trends, we have revised our view on key assumptions, particularly on the long-term risk free rate beta, based on the perceived downwards to 2.75%, reflecting systematic risk of a company and implied forward yields on longer- its comparables. As many of the term bonds. Government bond calculations here are mechanical, Mark Paterson yields are currently at historical readers are advised that they should Director lows, and we will continue to consult the PwC Deals team if +64 21 879 610 monitor rates closely given the require a formal WACC estimate. [email protected] potential for further OCR rate cuts We also note that the market by the Reserve Bank. multiples presented are based on • We have retained our estimate of observed historical earnings, as the post-tax market risk premium normalised earnings forecasts are of 7.5%. This is based on historical not available for all companies. data from 1928 onwards and has proven resilient to economic PwC is the leading corporate cycles in the past; however we finance practice in the anticipate providing an update on market, and has completed over the market risk premium in the 200 valuations in the last 3 years, next cost of capital report. spanning large listed companies to minority interests in small, • Based on analysis from our private businesses, across all market-leading Corporate industry sectors. Treasury team, we have refreshed our approach to cost of debt. Cost of debt has been estimated using the spread implied by the company’s current credit rating (if one is available) or the implied credit rating based on a high-level shadow credit rating analysis.

PwC | Cost of Capital Report: New Zealand | 2 Cost of capital and market multiples

Company NZSE EBITDA EBIT NPAT Equity D / (D+E) WACC Code Multiple Multiple Multiple Beta Ratio Agriculture & Fishing Limited ATM 29.4 29.5 42.1 1.4 0% 12.2% Synlait Milk Limited SML 16.8 20.8 26.9 1.5 14% 12.1% Delegat Group Limited DGL 12.8 15.1 18.7 0.5 23% 5.1% Sanford Limited SAN 9.3 12.0 15.6 0.4 19% 4.8% Shareholders' Fund FSF NM NM NM 0.4 0% 4.6% PGG Wrightson Limited PGW 16.6 24.3 NM 1.1 36% 8.0% New Zealand King Salmon Investments Limited NZK 13.2 16.3 23.2 0.8 5% 7.4% T&G Global Limited TGG 10.9 21.6 NM 0.5 31% 5.0% Seeka Kiwifruit Industries Limited SEK 8.9 14.7 18.5 0.6 37% 5.4% Foley Wines Limited FWL 16.1 23.8 35.6 0.4 15% 4.9% Marlborough Wine Estates Group Limited MWE NM NM NM 0.4 8% 4.8% 16% 10.4% Health & Aged Care Fisher & Paykel Healthcare Corporation Limited FPH 27.7 31.4 43.7 1.2 1% 10.9% Limited RYM 18.6 19.7 17.2 1.2 17% 9.8% Ebos Group Limited EBO 15.2 17.4 22.7 1.0 18% 8.4% Summerset Group Holdings Limited SUM 8.4 8.6 6.9 1.4 24% 10.1% Limited MET 11.6 12.0 11.4 1.2 19% 9.2% Oceania Healthcare Limited OCA 20.6 26.6 17.3 1.1 25% 8.4% Arvida Group Limited ARV 8.1 8.5 7.3 0.8 22% 6.7% AFT Pharmaceuticals Limited AFT NM NM NM 0.4 18% 5.0% TruScreen Limited TRU NM NM NM 0.4 0% 4.6% Pacific Edge Limited PEB NM NM NM 0.6 0% 6.2% Green Cross Health Limited GXH 5.6 6.7 8.7 0.5 27% 4.9% Abano Healthcare Group Limited ABA 7.1 10.3 8.1 0.8 58% 5.3% 13% 9.7% Transport Limited MFT 18.0 21.9 29.7 0.6 7% 5.9% Limited AIR 5.9 12.6 9.2 1.0 50% 6.1% Freightways Limited FRE 13.0 14.9 20.0 0.8 12% 7.4% TlL Logistics Group Limited TLL 7.8 14.4 17.0 0.6 41% 4.9% Qex Logistics Limited QEX 17.8 18.3 27.0 0.4 10% 4.7% 30% 6.2% Investment AMP Limited AMP NM NM NM 1.6 78% 5.1% Limited IFT 10.9 16.7 29.4 0.8 45% 6.3% Kingfish Limited KFL 5.5 5.5 5.5 0.5 0% 5.6% Marlin Global Limited MLN NM NM NM 0.4 0% 5.3% Barramundi Limited BRM NM NM NM 0.4 0% 4.8% Rubicon Limited RBC 10.7 NM 17.0 1.1 36% 7.3% Mercantile Investment Company Limited MVT 45.5 46.8 NM 0.7 46% 5.9% 71% 5.3%

PwC | Cost of Capital Report: New Zealand | 3 Company NZSE EBITDA EBIT NPAT Equity D / (D+E) WACC Code Multiple Multiple Multiple Beta Ratio Property Goodman Property Trust GMT 12.1 12.1 10.5 0.6 24% 5.9% Limited KPG 16.3 16.3 17.7 0.7 30% 5.7% Precinct Properties New Zealand Limited PCT 9.9 9.9 7.8 0.6 27% 5.4% Argosy Property Limited ARG 9.3 9.3 7.5 0.6 38% 5.0% Property for Industry Limited PFI 9.8 9.8 8.8 0.5 30% 5.0% Vital Healthcare Property Trust VHP 19.9 11.4 10.3 0.6 44% 5.1% Investore Property Limited IPL 11.3 11.3 9.4 0.6 43% 5.0% CDL Investments New Zealand Limited CDI 5.0 5.0 6.7 0.4 0% 4.6% Augusta Capital Limited AUG 13.1 13.4 25.3 0.4 6% 4.7% Asset Plus Limited APL 18.0 18.9 24.8 0.4 9% 4.7% 31% 5.4% Financial Banking Corporation Limited WBC 25.9 26.8 10.1 1.3 74% 4.9% Australia and New Zealand Banking Group Limited ANZ 26.9 28.0 10.5 1.3 74% 4.9% Heartland Group Holdings Limited HGH 18.6 19.6 12.3 1.1 55% 6.1% NZX Limited NZX 15.5 16.9 23.6 0.5 12% 5.3% Tower Limited TWR NM NM NM 0.9 0% 8.8% 74% 4.9% Services AWF Madison Group Limited AWF 9.2 13.2 15.0 0.6 37% 5.4% Evolve Education Group Limited EVO NM NM NM 0.9 60% 5.1% 49% 5.3% Ports International Airport Limited AIA 12.5 13.9 15.6 1.1 18% 8.6% Port of Limited POT 24.1 28.3 38.4 0.5 11% 5.7% Marsden Maritime Holdings Limited MMH 24.4 25.4 25.4 0.4 3% 4.6% South Port New Zealand Limited SPN 11.3 14.1 19.3 0.4 6% 4.6% 16% 7.8% Building Materials & Construction Limited FBU 10.3 16.1 24.5 1.3 30% 9.3% Steel & Tube Holdings Limited STU NM NM NM 0.4 11% 4.9% Metro Performance Glass Limited MPG 4.7 7.3 6.0 1.0 55% 5.9% 30% 9.1% Industrial Products Holdings Limited SKL 9.3 10.9 14.2 0.5 9% 5.3% Scott Technology Limited SCT 10.7 13.7 18.4 0.6 4% 6.3% EROAD Limited ERD 19.3 NM NM 1.7 16% 12.5% Methven Limited MVN 11.6 14.7 19.7 0.7 21% 6.1% Drive Technologies Limited WDT NM NM NM 0.6 9% 6.0% ikeGPS Group Limited IKE NM NM NM 0.4 0% 4.6% 10% 7.0% Leisure & Tourism SKYCITY Entertainment Group Limited SKC 10.1 13.9 16.5 1.2 20% 9.6% THL 6.3 10.1 10.3 0.8 28% 6.7% Millennium & Copthorne Hotels New Zealand Limited MCK 6.9 7.6 9.8 0.4 10% 4.7% 20% 8.4%

PwC | Cost of Capital Report: New Zealand | 4 Company NZSE EBITDA EBIT NPAT Equity D / (D+E) WACC Code Multiple Multiple Multiple Beta Ratio New Zealand Limited RBD 13.2 21.0 29.7 0.8 13% 7.5% Limited WHS 8.4 16.4 28.0 0.4 20% 4.9% Briscoe Group Limited BGP 7.9 8.4 11.4 0.6 0% 6.2% Holdings Limited KMD 6.5 7.7 9.7 1.0 14% 8.4% Hallenstein Glasson Holdings Limited HLG 6.0 7.1 9.8 0.6 0% 6.3% Michael Hill International Limited MHJ 6.8 11.3 16.1 1.5 10% 12.2% The Colonial Motor Company Limited CMO 8.3 9.1 11.1 0.7 29% 5.7% Turners Automotive Group Limited TRA 11.2 12.3 7.5 0.9 63% 5.9% 18% 6.8% Consumer Scales Corporation Limited SCL 11.1 13.2 15.5 1.2 9% 10.0% Moa Group Limited MOA NM NM NM 1.0 0% 9.5% Comvita Limited CVT 29.4 NM NM 0.6 37% 5.4% Limited CAV NM NM NM 0.7 37% 6.1% Just Life Group Limited JLG 8.6 14.8 18.8 0.5 23% 4.8% 18% 8.5% Media & Telecommunications Corporation Limited TLS 6.9 11.4 12.2 0.6 33% 5.2% Limited SPK 10.0 15.4 18.6 0.7 22% 6.5% CNU 8.5 22.4 37.8 1.1 54% 6.3% Network Television Limited SKT NM NM NM 0.5 30% 5.2% NZME Limited NZM 6.1 11.2 9.2 1.5 53% 7.8% Vital Limited VTL 4.2 6.8 8.4 0.6 28% 5.9% 33% 5.4% Utilities Limited MEL 17.5 27.1 44.0 1.1 13% 9.2% Mercury NZ Limited MCY 12.1 18.2 25.7 0.8 21% 7.1% Limited CEN 8.7 12.5 14.2 0.9 19% 7.4% VCT 11.4 18.7 23.5 0.6 41% 5.2% GNE 14.7 37.2 NM 1.1 27% 8.0% Limited ZEL 5.6 6.9 7.8 1.1 27% 8.2% TrustPower Limited TPW 12.0 14.4 18.6 0.7 19% 6.6% Tilt Renewables Limited TLT 11.8 NM NM 0.7 49% 5.2% The New Zealand Refining Company Limited NZR 6.1 16.7 22.1 0.5 29% 5.0% NZ Windfarms Limited NWF 12.8 38.3 NM 0.6 23% 5.5% 23% 7.5% Information Technology Group Limited TME 19.5 20.0 26.9 0.9 8% 8.3% Pushpay Holdings Limited PPH NM NM NM 1.5 0% 13.4% Vista Group International Limited VGL 34.1 38.4 NM 1.3 1% 11.3% Gentrack Group Limited GTK 19.5 22.0 34.9 1.0 0% 9.9% Limited RAK 3.6 4.1 4.1 0.9 8% 8.6% Plexure Group Limited PLX NM NM NM 1.1 4% 9.8% Smartpay Limited SPY 9.2 23.6 17.9 1.3 49% 7.4% 5% 9.8% Mining New Zealand Oil and Gas Limited NZO 5.7 NM NM 0.4 0% 5.2% 0% 5.2%

PwC | Cost of Capital Report: New Zealand | 5 Contact us

Auckland Hamilton Gareth Galloway Nick McVerry Partner Director [email protected] [email protected]

Justin Liddell Andrew Ricketts Partner Director [email protected] [email protected]

David Bridgman Wellington Partner [email protected] Richard Longman Partner Regan Hoult [email protected] Partner [email protected] Chris Hedley Craig Armitage Executive Director Managing Partner [email protected] [email protected]

Brendon Jones Wayne Munn Executive Director Partner [email protected] [email protected]

Mark Paterson Michael O’Connor Director Executive Director [email protected] [email protected]

Full details of PwC’s Cost of Capital methodology are available at: https://www.pwc.co.nz/services/mergers-acquisitions-valuations/wacc.html

© 2019 PricewaterhouseCoopers New Zealand. All rights reserved. ‘PwC’ and ‘PricewaterhouseCoopers’ refer to the New Zealand member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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